The change from the previous standards regulating the recognition of revenue was initiated as it was found that the previous main revenue recognition standards namely, IAS 18 Revenue and IAS 11 Construction Contracts, were difficult to understand and apply. Furthermore, IAS 18 provided limited guidance on important topics such as revenue recognition for multiple-element arrangements.
The IASB and FASB initiated a joint project to clarify the principles for recognising revenue and to develop a common revenue standard that would:
IFRS 15 utilises a five-step model framework to ensure that an entity will recognise revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The five-step model consist out of the following individual steps:
We believe that the vast majority of entities utilising International Financial Reporting Standards as their financial reporting framework would have successfully planned for the adoption of the new standard as it is already effective. Management should currently be monitoring new systems implemented to facilitate the change from the previous standard. This will ensure proper implementation of controls and compliance to the new standard. We further recommend that management continuously monitor the impact on the revenue figure and compare the expected effect on KPI’s and ratios to the actual current results.
We firmly believe that proper planning prevents poor performance. We thus encourage management considering a switch to International Financial Reporting Standards from International Financial Reporting Standards for Small and Medium-Sized Entities to investigate the effect that IFRS 15 will have on the revenue figure.
We will gladly assist in any IFRS 15 implementation queries you might have.
Tiana Kluyts Louis Meyer Jannie van Deventer
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)